Welcome back everyone. In this episode of the drills will Carlson show. We have two companies that I'm going to be going over there. Dividend-paying companies and they're ones that I think are particularly goodbyes in this market. Now, I also have some other news we're going to be getting to Jeremy. Siegel is holding strong to the FED pivot.
I want to hear him explain, why he thinks the FED is going to Pivot. We also have some more weird and disturbing news that faces of celebrities are being deep faked, and they're being put on different actors in commercials. Now, I on to go through and give my reaction to this and explain why this is especially concerning. So we have a lot of fun things to go over in this episode. Let's go ahead and jump in with my portfolio. Will start off with a quick portfolio update.
This is the passive income account, it's my dividend growth portfolio. Focused on those compounding companies. The focus here is on buying very high quality companies at a reasonable or even preferably cheap price that is the perfect combination high quality companies at a cheap price. Now, I've been trying to do this Over the past year and I think I built up a pretty strong portfolio. And what I want to do in this episode is highlight two companies.
In particular that have held up really well. During this downturn, one of them is a company that I hold in my portfolio and one of them is not. Let's start off with the one that I currently hold. It's in the real estate category and the company's Vici, this is a big holding of mine. In fact, it was one of my largest bets last year. I really started piling money into this company because I thought it was a high-quality one that paid a high yield. I thought it had good moat.
I really like the leadership. In fact, I even interviewed the CEO of the company. I found them to be very knowledgeable about the business. There's overall a lot of qualities I liked about Vici but even knowing this is a good company. And even with the initial research I did on it, I've actually been surprised by the relative substantial out performance of this company. Let me give you an example here. Vici currently is down zero percent year-to-date.
So it's had a little bit of volatility and went from Dollars at the beginning of the year down to 27 all the way up to 35. And now it's back to $30. So it's basically flat on the year with a little bit of volatility, but of course, this is outperformed, the S&P 500 and the QQQ. That's pretty impressive. A company that can outperform the major indices during a bear Market. I think is something notable but that's still not the most impressive part of this performance.
The most impressive part is how good the performance of view she has been relative to its own peers. Other real estate companies that are also high quality. We have realty income Court, a dividend investors favorite that's been paying dividends for decades. This company is currently down 17 percent this year, we have Simon Property the mall. Read this company's down 36 percent. Year-to-date, we have medical properties, trust a hospital Reit. This one is currently down, 56 percent.
Year-to-date, we have digital Realty. This one is a data center read. This one's down 44 percent. Year-to-date we have American Tower Corp. This is a big Telecom read. This one is currently down 35 percent. Year-to-date in fact even if we just bring up v&q, the entire real estate index, it's down 32 percent year-to-date lower than the S&P 500 and the QQQ.
So real estate as a whole is performing worse than the actual market and VG currently isn't down at all and I find this interesting why is Vici holding up? So well looking back at the management of the company. It turns out that they made some pretty good decisions early on with protecting Vici against Inflation and Ed Pitonyak. Highlighted that in his interview with me back in December of last year we do somewhat uniquely as a cripple.
Every we do have a critical mass of our rent, roll with Lisa's that involve inflation protection for us. As a landlord, notice how you uses the word uniquely, not every single re is doing this, in fact, most streets aren't doing this. They aren't really prepared for record. High inflation, interest rates going up cost of capital right. I think most of them made no preparation beforehand and that's why VG's unique.
So as an example with Caesars, we have to Lisa's, we have, what we call, our Las Vegas Master Lease and then our regional property Master Lease, our Las Vegas Master. Lease has a, what we call a CPI kicker in that the rent escalates every year at a minimum of 2 percent or CPI, okay? Right. And the hire of I should say. So are our rent on our Las Vegas Master Lease actually escalated nearly 5%.
Oh well as effective as of November 1st, next year our regional Master Lease will will go to the higher of 1.5% or CPI uncapped. So if you take 40% of our rent roll we have uncapped inflation protection built into Lisa's that is Very unique among triple never eats only w.p. Carey, that's part of multiple that rates really has that kind of inflation protection and no Ed mentions that w.p. Carey is the only other read to have some level of inflation protection. When we bring up this stock,
w.p. Carey, you can see that it is performing much better than other comparable REITs. And again, this is probably because of their inflation protection. This is a very present thing for management to think of ahead of time. Remember that a couple years ago, inflation protection was kind of like Maybe good to have, but not really necessary. A few years ago, central banks were worried about deflation inflation wasn't even something in their minds.
It wasn't even something really conceivable but the management of Vici were very wise and protecting a lot of the rents of their company from inflation. When we look at the actual breakdown of inflation protection right now. 47 percent of each. He's portfolio is inflation protected. And then moving on to 2023, they estimate that I'll move on to 53%.
So if inflation does Persist a greater portion of VG's portfolio actually becomes inflation-protected overtime going on to twenty twenty six, twenty thirty two, and all the way into 2035. By that point, ninety six percent of the portfolio is inflation protected. But the most important thing for investors right now, in this decade is that 47% currently is and that's 47 percent more than
most real estate. Companies, most of them do not have any meaningful inflation protection and that's crushing. Them right now, here's another table that I think better illustrates how this actually affects Vici off to the left. We have a column of CPI growth. This is inflation. So it gives us a range of hypothetical inflation. Then off to the right, we have V, TS FF, o growth ffo growth is basically like their free cash flow. That is their funds that they get from their operations of
their company. As you can see the lower the inflation, the lower VG's rents. So the rents actually adjust to inflation. It's not Perfect one to one but it's enough to really help investors out. For example, even if inflation stayed as high as 7.5% VG's fo growth goes from 2.6 percent all the way up to six point one. So they offset the effects of inflation, to a huge extent. And the problem with most real estate companies right now, is they simply do not have this ability.
So really when I try to dig down and find out the reason this company is performing so much better relative to the broader market and Even other real estate companies. I really think it's that rent escalation. I think that's the key thing that Vici did that in hindsight was very wise to do. And a lot of other real estate companies. They're simply not in the same situation and they can't go back in time and change the contracts
that they've made. In my opinion, the reason I highlight this company is one of the best dividend companies is. I think this relative outperformance will continue into the future. Now, I want to highlight another dividend-paying company that I believe will outperform that I don't currently own. The company's UnitedHealth Group
it's a health insurance company. When I look at the compound or checklist and I try to see what companies really fit in to all of this, very strict criteria, United Healthcare is one of the ones that I really think checks all of the boxes strong franchise durability does this company have brand power UnitedHealth Group is one of the most recognized health insurance
brands in the world. So in terms of brand value, it probably has the most brand value in its category that it competes in. Number two, does a company earn high returns on Capital employed Returns on Capital employed are one of the key metrics that investors like Carrie Smith. Look at it basically means how effective this company is.
When it reinvest back into its business, in this case, UnitedHealth Group gets around 18% Roc, e, and this has been very consistent for the past decade, almost 17 to 18% year after year. After year, this isn't the highest are oce in the market. So there's companies that have higher Returns on Capital employed, but there's very few Companies that have this level of consistency and 18% is high enough. It's good enough. Moving on to number three, does UnitedHealth Group have
recurring Revenue? Do they make money from a large group of people from repeatable and predictable transactions. The answer to this question is obviously yes. UnitedHealth Group has millions of customers repeatedly, every month, paying them money for health insurance. This about his recurring as it can get. This may as well be a massive subscription company for something that's session. Airy you can see the growth over time, it's almost perfectly consistent.
The only variance is actually when they've done deals and bought companies are sold companies. It's not really what their Core Business. Number four days, UnitedHealth Group have minimal financial leverage, this is also easy to look at. We can bring up the balance sheet of the company. Basically all we're trying to find out here, is this company going to go bankrupt? If we get into a recession, we
don't want over lever companies. In this case, UnitedHealth Group has around 17 billion dollars of net debt. Last year, they Had ibadah of 26 billion. So another not over levered. They could pay off all of their outstanding debt with their cash and less than one year's worth of income. Number five is the company low cyclicality, this one's a little bit more tricky to determine basically what we're trying to do is find companies where their overall economics of their business are somewhat
predictable. Generally speaking, the less volatile and more predictable. The earnings per share are the lower cyclic ality the business. In this case we have a little bit of cyclic ality and 2007, the earnings dropped around 25% but that's about in range with the rest of the broader markets. I think this is a lower cyclicality company and then finally number six does the company return Capital? Do they pay a dividend or do they do Buybacks in terms of
dividend payments? This company is one of the best and most reliable. Their dividend has literally only gone up and they've compounded it over the past 10 years at 22%. That is very fast dividend growth, that is amongst the top tear even last year. They raised their dividend 14% And they're doing that while maintaining a low payout ratio of 30 percent. So they have a lot of flexibility to be able to raise their dividend further in the future. They're not only paying a dividend.
They're also returning Capital through share BuyBacks. They only seem to buy back a little bit but it's still meaningful last year they bought back Point, 85 percent of their shares outstanding. So this company is a compounder it checks all of the boxes here in terms of valuation. I also think even despite its eight percent rise while we have addict. Lining Market. I still think this company is undervalued.
They've been growing their earnings 18% for the past five years, even last year, they grew at 19 percent. So they have very fast earnings growth and with return on Capital employed of 18. This company should be trading around a 27 PE ratio. So I think that UnitedHealth Group overall is a high-quality compounding company that even despite its good run-up. I think it's relatively underpriced. Now, having said that I don't currently on the company but it is one that I'd be willing to
invest in the future. Now, currently with my Portfolio. I continue to reinvest in the companies that I have over the past couple of months I've basically taken it easy. Continue the dollar cost average in every single week with new deposits and I just sit back and reinvest my dividends beat. You just paid almost a five hundred dollar dividend. I get them from Nike and Pepsi and dominoes, and tiro price and seh. Di, and Texas Roadhouse is now paying a decent sized dividend.
It's $183 from that company, but so on and so forth. All of this money gets paid to me. I reinvest it and the loop continues Even if this bear market last for another six months, that's just another six months, I'll be able to use all that dividend income to compound. My share count, grow my passive income and grow my stake in these companies. So, I'm completely fine waiting this out. But there is someone else that thinks this bear Market may end
sooner. His name's Jeremy Siegel and he's been one of the few bullish ones predicting that the FED is going to Pivot far sooner than most people are predicting. Here is his latest comments on it. But as a statement by the FED that they say, The progress,
right? And at some point can afford to pause and see if that progress really makes it that's, that's, that's what the market is. Looking for this, the, the what scares the market, the most is the Fed is going to stay this tight through 2023. Which I absolutely think would be really disastrous disagree with Larry that we have to be as high as he thinks we have to get because I really think that That tremendous progress has already been made against inflation and
we're way on the downside even though the statistics won't show it for for quite a while. So, I think that the FED is, you know, I wouldn't be surprising to you do percent fed funds rate by the end of 2020 32 percent by the end of next year, is way ahead of the feds predictions. They're putting that all the way out to 2026 and he's saying by 2023. So Jeremy Siegel has a very contrarian view here that inflation is going to. Down much sooner than expected.
If that were to be the case, it would change the equity markets to a huge extent. We've only had six months of tightening started in March at all of a sudden, because core rates are not going down. People are saying, oh, the feds not working. It has to keep on hiking. There are lots of there are long and variable legs in it. Look at the exposure money started in 2020, and it didn't influence. We wouldn't get a lot of inflation to 321 but I find myself agreeing with Jeremy
Siegel here. I think that in general investors are very impatient. I was expecting inflation to come down by the end of this year, which I still think there's a chance it will. But it is being more stubborn. It's taking longer than expected investors. Want the federal funds rate to take action and work right away and Jeremy's basically saying it'll work it'll just take an extra year it'll happen in 2023. Keep in mind all of this is speculation of how this will eventually turn out.
Nobody really knows the answer. That's why it's so important to have a portfolio. That's geared towards any eventuality. Whether we have stagflation, High, inflation or low inflation. We need to be prepared for any of those outcomes. Now, moving on, I want to jump into a story that I think is somewhat disturbing. This is a new trend.
It's been happening for a couple years now, but with the Improvement in artificial intelligence and in technology and photo and video Imaging. Deep fakes are becoming more and more popular from The Wall Street Journal. They say, deep fakes of celebrities have begun. Gun appearing in ads with or without their permission last year. A Russian Telecom company. Put Bruce, Willis has faced in an ad without his permission. Yeah, that's not Bruce Willis. That is someone else with Bruce
Willis is face on him. Now, as bad as that Russian ad is, here's one that's far more disturbing. This is a real estate. Add from a real estate startup company hears Margot Robbie in a bubble bath to explain basically Oh hello, it's your favorite chick bro. Elon are disrupting bubble baths. Now in this one, the face Imaging doesn't look amazing. The voices are so off. You can tell right away, it's not really Elon Musk but it's still disturbing nonetheless.
And again this is for a real estate company. Kind of like a reggae is disrupting investment startup bottles Breguet. You say, isn't that the music that you listen to with Joe Rogan smoking? A massive spliff it is. But it's So way to democratize, who can invest in an exciting new startups from the ground up, this ad continues on for another couple of minutes, but you get the point. Now, you can see where this technology might be potentially dangerous and problematic, it
has an upside authorized deep. Fakes could allow marketers to feature huge stars and ads without requiring them to actually appear on set or before cameras. So, basically, there's licensing opportunities here. A celebrity could just give a license agreement of Of authorized use of a deep fake, make some money without actually having to do any additional work. That's the upside, the downside is that a lot of groups are going to be using this unauthorized.
Celebrities could struggle to contain a proliferation of unauthorized digital reproductions of themselves and the manipulation of their brand and reputation. There's a chance that celebrities, or anybody that's even notable, could have their reputation destroyed by someone, that's not even them. And that is a pretty substantial downside. In this case, I actually think the Site is much greater than the upside potential. They want to say that we're having a hard enough time with
fake information. Now we have deep fakes which are looking ever more convincing and they are looking ever more. Convincing, those two from those major advertisements weren't even the best ones online. Some of these deep fakes are looking pretty convincing. I'm going to show you some magic. It's the real thing. I mean, It's all the real. I mean we can still tell the difference, right? This isn't really Tom Cruise. You can tell that this really isn't Tom Cruise.
Right? Well maybe but maybe not you have to admit. This is starting to look pretty convincing now I don't know exactly how this is going to play out over the next year but my prediction is we're going to see this as a growing problem. I think over the next year we're going to see a lot of lawsuits from celebrities that aren't happy with their image being used by random advertisements, especially when the Fidelity of real and fake gets better and better. Were actually convinces people,
that it's real. So so, we'll see how this plays out now, that's going to be all for this episode. Thank you for joining and I'll see you in the next one.